A blog post of 16 June 2020 on the website of the Platform for Collaboration on Tax (PCT) outlined the role of tax in dealing with the COVID-19 crisis. The PCT was set up by the OECD, IMF, World Bank and UN to cooperate and consult on the design and implementation of international tax standards. The PCT also aims to strengthen capacity building support; facilitate information sharing; formulate tax technical advice to developing countries; and assist countries in achieving the Sustainable Development Goals.
The blog points out that developing country economies are being hit by the measures they are having to take to protect their citizens in the crisis and by disruptions to supply chains and in areas like tourism. This global crisis requires an international response that is well coordinated on a multilateral level and must combat tax evasion, tax avoidance and illicit financial flows. International efforts must aim at fairer taxation of economic activities on a global basis.
Emergency tax measures have helped to maintain access to goods and services. The economic impact of the crisis has varied across social groups and taxation can play a part in compensating for the resulting inequality. As a result of the crisis the aggressive tax avoidance by large companies is becoming more intolerable than before to the public. This increases the focus on work carried out on international corporate taxation by the OECD’s Inclusive Framework and by the UN Tax Committee.
Taxation will also pay a part in the recovery from the crisis. The average tax to GDP ratio is likely to decline in developing countries and this will especially hit those countries that already had limited fiscal space at the start of the crisis. Although emergency funding from international organisations has a place in the short term, it is also necessary for countries to strengthen domestic resource mobilisation.
In the longer term tax capacity building is important. Tax measures will form part of the stimulus to economic growth but it is necessary to achieve the right balance between revenue-raising measures and tax stimulus measures. Once economic growth has restarted additional tax revenues must be raised to ensure fiscal sustainability. Tax can be used to promote equality and can also be a stimulus for environmentally friendly activities.
Work on building governance capacity has already begun in many countries and will be more important following the crisis. Good governance involves transparency in the monitoring of domestic revenues, aid inflows and government spending. Tax capacity building is an essential step in a strategy to achieve the Sustainable Development Goals. The partners in the Platform for Collaboration on Tax are therefore continuing to cooperate and collaborate in analysing tax structures and the impact of reforms on the income of lower income developing countries.
